Hard-rock café crowd hits jackpot

Individuals shift attention to natural resources

By

ThomCalandra

SAN FRANCISCO (CBS.MW) - Individuals, sensing a stock-market washout, are opening their portfolios to the suggestion of alternatives, such as commodities and foreign-denominated cash.

For most Americans with retirement savings and investment portfolios, the stock market has been the investment of choice their entire lives. That's changing as stocks and the American dollar continue their journey south and commodities markets exit years of slumber.

"A 10 percent to 15 percent addition of commodities in a stock/bond portfolio not only increases return but also reduces volatility," says James Tu, director of investment research at Gerstein Fisher & Co. in New York. Commodities as a group - from grains to gold - rose 25 percent in 2002 vs. declines in all major equity indexes.

Tu points out the Goldman Sachs Commodity Index, a basket of agricultural, mineral and energy products, returned an average 11.78 percent a year between 1970 and 2002 against 10.88 percent for the Wilshire 5000
97199001,
which represents the entire U.S. stock market.

Gains in natural resources are making stocks look like yesterday's e-mail, and providing profits for the "hard-rock café" crowd that follows metals and minerals miners. The Commodity Research Bureau's main gauge (1864498) is up another 3 percent since Dec. 31. Gold, until last year one of the most distressed of the natural resources, on Wednesday surpassed $360 an ounce for the first time in six years.

"Although always leery of random acts of nature, my personal opinion is that we are standing at the early stages of a major move in gold, regardless of what happens in Iraq," says Brent Cook, a geologist and minerals exploration analyst at Global Resource Investments Ltd.

Cook's research on Southwestern Resource Corp. (SWG), which is digging in China, Rio Narcea Gold Mines (RNG), which is active in Spain, Virginia Gold Mines (VIA) and other explorers pinpointed some of the sector's biggest stock-market gainers in 2002.

"We are about to see a commodities boom develop over the next two years," says Cook, who will speak this weekend at the Vancouver Gold Show in British Columbia. "This scenario will evolve in an environment in which we are acutely short of new mineral resources and prospects."

"I believe a major uptrend has been confirmed in gold and gold stocks," says Ian McAvity, editor of Deliberations on World Markets in Toronto and a director of Central Fund of Canada
CEF, -1.64%,
the only bullion fund that trades as a security in the U.S. stock market. "A very major downtrend in the dollar is well under way with no end in sight."

McAvity's newsletter, nearing its 700th issue, relies on rigorous data and decades of historical charts. The Central Fund of Canada depository for gold and silver that McAvity co-founded 20 years ago is the only stock-market avenue into bullion. Several organizations are at work on exchange-traded funds that will act as gold proxies in the U.S. and Canadian stock markets. See: At $1,000, gold may outpace miner equities.

Investors, eyeing steady gains in gold, gold-mining shares and other commodities as the dollar continues an 18-month slide, are starting to wonder how they can shift into natural resources and foreign-denominated cash. For many of them, the popular press is short on meaningful strategies that focus not on paper, but on hard assets. See: Foreign CDs entice investors.

Richard Lombardo, another Main Street investor, notes, "Cattle, coffee, and gold seem to be a better place for the next couple of years to concentrate some long term strategies." See: Back to the farm for investors.

Tu at Gerstein Fisher acknowledges it will take cataclysmic events before the majority of ordinary Americans shift their attention, and their hard-earned money, to commodities and away from the paper chase.

"The stock market is considered today as the symbol of freedom and capitalism. But investment is not about freedom," Tu says. "It's demand and supply. The gold price
38099902
is rising against paper currency because there is too much paper flying around compared with hard assets. So I'm afraid before the current bear is over, a great number of people will have lost all their nest eggs."

Bullion bash

Gold-silver fund managers, analysts and mining executives will gather for their next major conference in Vancouver, British Columbia. The gathering this weekend, the Vancouver Investment Conference, will feature several gold mining analysts and newsletter editors whose hit rates on promising exploration companies were outstanding in 2002, among them Brent Cook, a geologist for Global Resource Investments, Robert Bishop, longtime editor of Gold Mining Stock Report, and Frank Holmes, chairman of U.S. Global Investors. See: Canada Gold Show.

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